Hard-pressed manufacturers, realistic wish list
Extra, extra! Firms realize that government spending is not a solution to their economic woes! Today's Globe and Mail highlights the response from the manufacturing sector as it suffers a slowdown like no other sector of late:
Canada's manufacturers are turning up the heat on Ottawa to help them out of their deep economic troubles, but the wish list is surprisingly timid given the extent of their woes.
That's probably because there's little that the federal government can do about the underlying cause of most of their troubles, economists say.
“Why aren't they asking for more? It may be the realization that a lot of their problems are way beyond the control of the Canadian government,” BMO Nesbitt Burns economist Doug Porter said.
The manufacturers will launch their lobbying effort today, publicizing a letter they recently sent to Prime Minister Stephen Harper that asks for lower corporate taxes, less red tape and better tax credits for research and skills training.
The hope is to win some commitment on manufacturing issues in next week's fiscal update, followed by concrete measures in next year's budget.
While lower corporate tax rates could be expensive for Ottawa, the manufacturers merely request the government keep its promise to reduce the corporate tax rate to 18.5 per cent by 2011, and then go a step further to 17 per cent by 2012.
As for tax credits, they want Ottawa to make its research and development regime more relevant, but not necessarily enrich it. And they want a new tax credit for training.
The most immediate and expensive request would have Ottawa allow capital investments to be written off over two years (instead of the eight to 10 years it now takes) — a proposal that would immediately improve the cash flow of companies investing in new technology, but one that would cost Ottawa about $1.5-billion in the first year.
The manufacturers have made no mention of handouts or lump sums of money, despite the painful restructuring the sector is enduring. So far, 83,000 jobs have disappeared in the sector this year, and about 200,000 since the end of 2002. Manufacturing output is flat compared with a year ago, and profit growth has slowed to a crawl. In Ontario, profits are falling.
“These are not issues that bailouts will fix,” said Jayson Myers, chief economist of the Canadian Manufacturers & Exporters.
Rather, the proposals would put Canadian manufacturers on a level playing field with other countries for taxes and investment incentives, he said.
Manufacturing in most developed countries has been under intense pressure for the past few years because of the rise of cheaper competition in China, but Canada faces some unique issues, Mr. Porter said. In the short term, Canada is particularly exposed to the slowdown in the U.S. economy, he said. In the medium term, the quick appreciation of the Canadian dollar is a serious issue other countries' manufacturers don't have, he added.
But manufacturers should probably not hold their breath for immediate action by the federal government. Next week, Finance Minister Jim Flaherty will unveil a Conservative economic road map aimed at making Canada a more powerful player in global markets. The economic agenda will not contain tax cuts or fiscal measures, but will lay out a direction for next year's budget and beyond, he said.
“This is a document that we hope will be a plan for the next 10 years or so,” Mr. Flaherty said Sunday.
“We are going to talk about, as part of the plan, about our direction in tax policy for our country, our direction in skills training and postsecondary education.”
The long-term economic plan will make the case for measures to boost Canada's productivity, although the Conservatives are expected to eschew the term in favour of Main Street friendly phrases such as “increasing opportunities” for Canadians. The agenda will argue for more investment in education, research and infrastructure, such as highways and border crossings, as well as a big role for the private sector in financing the latter.
In some respects, the Harper government is now moving closer to its Liberal predecessors in its economic focus. Sources have said the Tories are drawing on the 143-page “Plan for Growth and Prosperity” paper that former Liberal finance minister Ralph Goodale's department released just two weeks before his government was defeated.
